Posts Tagged ‘Benefits of ERP’

Companies invest in new and upgraded business systems for many reasons ranging from the replacement of the old system because it’s no longer supported, or hasn’t kept up with changes in technology, or they can’t get good (or any) support… to the more substantive reasons like a desire to reduce costs and get leaner, or the fact that they are growing and need the business platform to get them there. But whatever a company’s reasons, a handful are fairly universal in terms of ROI and system benefits. Five benefits highlighted in an article by Eric Kimberling, an ERP consultant, gives us the basis for comments derived from 30 years of implementations ourselves.

Increased revenues. Most folks look at ERP as a way to reduce costs, neglecting to realize that capabilities like CRM (Customer Relationship Management) and demand planning make it much easier to track and manage sales and marketing efforts and match capabilities to customer demand, thereby not only improving the bottom line but increasing the top line. The key is to identify inefficiencies and opportunities within them. The data inside your ERP will allow you.

Decreased inventory cycle times. With all your data inside one repository, it becomes a lot easier to spot trends, identify overstocks, manage product flow, sell what you have and demand-plan for what you don’t. That doesn’t even begin to extol the virtues of improved inventory visibility overall, and how that can help reduce excess inventory and improve turns.

More efficient business processes. This one’s part ERP, part people. But by combining both, you can identify process gaps, redundancies and workflow inefficiencies, and design better processes in their place, utilizing your system to manage and automate those improved workflows. An ERP implementation is the perfect time to improve your processes.

Integrated business processes. Improved integration across customer service teams, inventory planners, production managers and accounting can all make it possible to have a unified view of the company reality across all users. You have to map your processes carefully and involve all the key players. But when you do, you have a more integrated, efficient and less redundant cycle of work flows and business processes that can be integrated neatly inside your software.

Higher employee morale. Maybe the least measurable element, but important nonetheless. When you make someone’s job less frustrating, or allow them to do more, more sensibly, or sometimes, just make their job easier… it’s a morale booster. Making it easier to process an order or find the information you’re looking for quickly can make a big difference in a person’s working day. Don’t underestimate the value of an employee who just feels better, and more productive, about their job.

As always, the key is to define the process up front. Identify the gaps and weaknesses. Find the hidden silos of information not available to all. Look for redundancy (the double and triple data entry tasks). They’re all there, and they can all be remedied through an effective combination of people, process improvement and software. The benefits are very, very real – as anyone who’s gone through a successful implementation will tell you.

For a new light on the ERP topic, we turn to Panorama Consulting, a Colorado based firm that often helps large companies manage their ERP implementations. We’ve quoted their work before and, while their clients are usually several orders of magnitude larger in volume than our own SMB market clients, we find that the lessons they’ve learned often correlate well with our own, much smaller manufacturing and distribution style businesses.

In a recent article, Panorama principal Eric Kimberling points out three ways he’s found over the years through his client work that “innovative” ERP implementations differ from the norm. Eric’s original post can be found here.

They aren’t overly concerned with hard and fast budgets and timeframes.

As Kimberling says: “This may sound like blasphemy to the CFOs reading this entry, but this is an important differentiator for innovative versus average implementations. While the average company sticks to their budget and project plan come hell or high water, more innovative companies recognize that there’s a lot that they don’t know when they first establish their project plans and budgets. In addition, these advanced companies also recognize that flexibility is important to achieving truly leapfrog improvements to their business models.”

They are more likely to explore creative and alternative implementation strategies.

As our own firm has touted over the years – and a finding that Panorama’s “2014 ERP Report” very much confirms – more than ever, today’s ERP implementations tend to follow a “phased” strategy as opposed to a big bang approach. (As we’ve noted in the past, such a method isn’t always possible, but when it is, it’s the preferred way, by far, to go, in terms of safety and cost effectiveness.) Taking this phased approach, it turns out, lends itself nicely to companies being able to “explore more creative and effective ways” to implement their ERP systems, Kimberling says.

They focus on post-implementation benefits realization.

While many companies undertake their ERP initiatives either because technology has forced them to or because their legacy systems have become outdated, the more innovative firms are utilizing more business-focused justifications that drive their implementations. This focus in turn helps sharpen the focus of the implementation team during the process – they keep their eyes on the prize so to speak, by putting the business objectives ahead of the technology ones. This in turn lends itself handily to a better focus on organizational change management and business process management.

We agree wholeheartedly with Eric’s conclusions. Wise customers will too.

We noted in our prior post some of the documented benefits gained by manufacturers who chose to implement ERP, based on the survey responses of over 1,300 firms from a 2011 report by Aberdeen Research. Given that panoply of benefits, in our concluding post today we’ll look briefly at what actions companies must take in order to gain those same benefits.

The “Required Actions” cited by Aberdeen varied according to what level you’re on in terms of implementing ERP. Those who don’t have a formal ERP plan, and aren’t very far down the road should focus on 3 key steps:

Develop a formal ERP strategy. Without it, you’re always reacting, instead of formally addressing the business and users’ needs.

Measure and measure again. It’s the only way to optimize long-term performance. Companies who reported successful ERP implementations were twice as likely to measure ERP’s impact on their firms.

Standardize on standards. Make your key processes and business practices standard procedures across the firm. Then, they can be automated.

For the “average” company, steps to success should include:

Get new employees up and running as soon as possible. Educate new hires and staff on your ERP strategy and how to use the system as part of the on-boarding process.

Standardize more than just cash management processes. As noted above, standardize practices and procedures across the organization wherever possible. Doing so permits you to get the most out of your automation and ERP system.

Get information to the right people, right now. The ability to quickly deliver key event information to decision makers (sales spikes, out of stocks, credit issues, etc.) through alerts and dashboards is one of the key benefits of a system. Include your mobile devices here as well.

And finally, even the companies with the best ERP implementations need some clear action points; theirs include:

Get sales in the ERP information cycle. Work to cut down on the separate, external, non-integrated databases, spreadsheets and re-typed data that are endemic to so many firms. Use ERP as the transactional component for a 360 degree view of the customer. It will drive yet greater utilization overall.

Use role-based home pages and dashboards. Today’s newest systems feature “Role Tailored Clients” where the information presented to users is relevant to them. They avoid presenting extraneous information that is not, and which often adds to confusion, complexity and system avoidance.

Develop a mobile ERP strategy. Generating alerts and triggers off ERP information to all users everywhere is a worthy goal. Start by making it a part of your formal ERP strategy plan.

By following these actions, you’ll end up with greater visibility across the organization, and a useful system that is vital to all users. The more they use it, the more they’ll need it, and the better organized your information, your users and your company will be.

Two years ago Aberdeen Group reported in its comprehensive analysis of ERP in Manufacturing how the best companies have gained quantifiable business benefits through the implementation of Enterprise Resource Planning (ERP) software. Just to bang the drum a little louder, following are a few of their key findings (*):

They are 3.4 times as likely to report a reduction in operational costs

They are 85% more likely to report a reduction in inventory costs

The are 2.6 times more likely report an increase in (annual) profits

They are twice as likely to report improved inventory turns

They are 2.4 times as likely to report increased production

(*) The comparison is between what Aberdeen defined as “Best-in-Class” companies (i.e., the top 20% of those surveyed) versus all others in their 2011 study of 1,323 respondents, which reported that over 70% of manufacturers employed ERP, the highest percentage of any industry.

Aberdeen found that these top ERP-using performers also reported:

An 18% reduction in levels of inventory on hand due to ERP

97% inventory accuracy (vs. 89% for lower performers)

96% manufacturing schedule compliance (vs. 79% for lower performers)

98% on-time and complete shipments (vs. 79% for lower performers)

3.3 days to close each month (vs. a full week for lower performers)

Top performing ERP users in manufacturing were also:

70% more likely to have a formal, structured ERP strategy to guide all parts of the organization

3 times more likely to have a “multi-tiered ERP strategy to meet the needs of disparate parts of the company”

75% more likely to measure the ongoing performance of their ERP system

Reasons enough? ERP works!

So in our next and concluding post in this quick two-part series, we’ll take a look at what Aberdeen said manufacturers needed to do in the way of “required actions” to get these kinds of results. Stay tuned…

According to a 2012 report by Panorama Consulting on the state of Enterprise Resource Planning systems – the lifeblood of any growing business today – a whopping 57% of ERP projects go over budget, and nearly that many take longer than expected to implement. Moreover, according to their research, nearly half of all projects “realize less than half of expected benefits” and nearly 30% “have not recouped any costs.”

It doesn’t have to be that way.

Companies who start with a focus on “benefits realization” have the best shot of measuring, then attaining, a suitable, and even enormous, return on investment (ROI). Simply put, benefits realization is a comprehensive project approach that focuses on identifying, measuring and ensuring the business benefits achievable through technology.

You break down high-level business benefits into “manageable, actionable chunks” as Panorama best puts it. You measure the benefits after implementation and utilize tools to ensure that the benefits are maintained, then sustained. In short, you’re merging the technical aspects of the implementation with the business aspects of the implementation to ensure that benefits are realized.

In a recent White Paper, Panorama described their take on Ten “Key ERP Benefits Realization Activities” that focus on business value, ones companies implement as part of an overall ERP project plan. [Find the original white paper here. You may need to register first.]

We’re reprising them here because we believe strongly in the wisdom these profess. Fully half the action points below relate to how well a company assesses its internal needs, maps its workflow and processes, prepares itself for ERP, and measures its progress – all critical components that being with a functional needs analysis (or what our firm refers to as the Business Process Analysis).

We’ll review Panorama Consulting’s first 3 Benefits Realization Activities in the rest of this post, and list the other seven in our next post. The first three, with excerpts from their comments…

High-level Business Case, Corporate Metrics and Benchmarks: It is important to identify and quantify the potential benefits of the project and then compare those benefits to the projected costs associated with the proposed information technology.

Organizational Readiness Assessment: Assess the company’s culture and identify employee resistance to change early in the project in order to pinpoint activities necessary to overcome this resistance.

High-level, Enterprise-wide Business Processes: Business processes need to be modeled and improved to improve efficiency and to make certain that technology is not merely used to “pave the cow paths.” Even more importantly, these defined business processes should ultimately drive overall ERP design, configuration and implementation.

This is a critical topic when a company evaluates ERP. We’ll close out with Panorama’s remaining seven action items in our next post, so stay tuned…

A handful of strategic advantages tend to accrue to businesses that use ERP systems effectively. Several of these advantages were revealed in a recent paper by Aberdeen Research on the use of ERP in Small to Midsize Enterprise, 2012.

In its research, Aberdeen makes a point of defining what they call “Best in Class” or “Top Performing” firms as those who rank statistically highest in its various surveys of business system users. Typically, these titles go to respondents whose results put them in the top 20% of users today – these are the folks who are most effectively leveraging their business software technology, people and processes to…

– Gain the fewest days sales outstanding (on average, just over a month)

– Close at month-end faster than most others (on average, in 3 days)

– Have the highest on-time deliveries (96% on average)

– And most importantly, earn the greatest increase in profits among all its surveyed companies over the past two years (on average, 18% greater)

Want to know how these “best of” companies are leveraging their information systems? Read on…

First, they make a big deal of standardizing and streamlining every process possible. They use their knowledge (and their consultants’ knowledge) to optimize their workflow processes, and then they build those processes into their software and workflow — especially back office functions like procurement, production, planning and execution.

Second, they know that to gain competitive advantage, you need to be cutting edge. And so they invest, strategically, in those systems that will give them a performance edge – in timeliness, order fill rates, delivery times and customer responsiveness. So they invest in modern hardware and software, and they strive to keep those investments up to date.

Third, they take intelligent action before they start taking orders. They perform demand planning and forecasting, using the knowledge bound up in their systems. Likewise, they scour the organization looking for areas for improvement.

Fourth, they commit to continuous improvement, not to mention lean initiatives. Top companies are thus more prepared for both internal and external shifts in their circumstances.

And finally, they commit to training their people. They use a defined on-boarding process to teach new users how to user their system. They make this a part of their culture. And they teach new hires the benefit and value (not just the usage) of their business management systems.

A recent report by industry analysts Aberdeen Research serves to bring home in clear focus the degree of benefit achieved by companies using ERP to improve their operations.

In a report released last year (and available here) Aberdeen demonstrates that, particularly in the manufacturing environment, even the least efficient ERP implementation provides more operational benefits than doing nothing.

As Aberdeen contributor and analyst Kevin Prouty [pictured] notes, “ERP touches almost every aspect of planning for a manufacturing company, from budgets and reporting, to detailed inventory and production scheduling. It becomes the foundation for growth in both operational efficiency as well as growth into new, distributed markets.”

Profitable company growth over the past couple years caused IT budgets on average to double from 2% to 4% of revenue from 2010 to 2011 according to Aberdeen’s research. Meanwhile, revenues and profits during that time grew in the 7 to 8% range.

The top four business drivers for manufacturers’ growing investments in ERP were noted as follows (each cited by between 27 and 43% of surveyed firms):

1. Must reduce costs

2. Must be easier to do business with

3. Need to manage growth expectations

4. Must improve customer response times

So… did these manufacturers’ investments in ERP yield benefits directly related to their stated goals? Here’s what they said:

The Best-in-Class firms (the top 20% as judged by a range of success criteria) showed an average 22% reduction in inventory levels… 97% inventory accuracy… took only half-a-week to close the month… had 96% manufacturing schedule compliance… and 98% on-time shipments.

For cutting costs and improving customer service, the answer to whether their ERP investments were worth it – was a resounding YES!

In our second (of two) posts in this series (on 7/19) we’ll take a quick look at the top strategic actions related to ERP. Stay tuned…